Reserve Bank hikes interest rates again as inflation soars

March 24, 2022

As expected, the SA Reserve Bank's monetary policy committee (MPC) has hiked the repo rate by another 25 basis points to 4.25%. This brings the prime rate to 7.75%.

Three members of the committee voted for the increase, while two wanted a 50 basis point hike.   

After the prime rate went from 10% in 2019 to 7% last year, the bank started to hike rates again in November last year, followed by another 25 basis point increase in January.

The MPC is moving to hike rates in an effort to subdue inflation, which has been heating up in recent months.

This is largely due to skyrocketing oil prices, which resulted in petrol and diesel prices rising by more than one-third over the past year.

The petrol price is currently on track for a hike of around R1.85 to R1.93 a litre in the first week of April, while diesel prices could see an increase of almost R3 a litre.

In addition, the invasion of Ukraine has triggered large increases in commodity prices, including wheat and cooking oil. This will add to inflationary pressure in South Africa in coming months.

The Reserve Bank now expects headline inflation for this year of 5.8%, much higher than the 4.9% it expected previously. This hike is primarily due to higher food and fuel prices.

But the bank has also hiked its expectation for South African economy growth - which is now expected to be 2.0% in 2022, revised up from 1.7% at the time of the MPC's January meeting.

"This is due to a combination of factors, including stronger growth in 2021 and higher commodity export prices. Growth in output in the first quarter of this year is likely to be significantly stronger than expected at the time of the January meeting," Reserve Bank Governor Lesetja Kganyago said.

Most economists expect another 125 basis point hikes by the end of 2023. -fin24

Rate this item
(0 votes)

Joomla! Debug Console

Session

Profile Information

Memory Usage

Database Queries